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Counter Party Risk

Counterparty risk refers to the risk that either party to a contract will not meet their contractual obligations. It is a risk faced by both parties in a contract, as one party may default by failing to pay what they owe or failing to deliver what they promised. Counterparty risk is especially relevant when evaluating financial contracts, as there is a risk that either party could default on loan repayments, funding commitments, or other financial obligations outlined in the agreement.

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73 views1 page

Counter Party Risk

Counterparty risk refers to the risk that either party to a contract will not meet their contractual obligations. It is a risk faced by both parties in a contract, as one party may default by failing to pay what they owe or failing to deliver what they promised. Counterparty risk is especially relevant when evaluating financial contracts, as there is a risk that either party could default on loan repayments, funding commitments, or other financial obligations outlined in the agreement.

Uploaded by

Gaurav
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Counterparty Risk

What Does Counterparty Risk Mean?


The risk to each party of a contract that the counterparty will not live up to its contractual
obligations. Counterparty risk as a risk to both parties and should be considered when evaluating
a contract.

In most financial contracts, counterparty risk is also known as "default risk".

Counterparty Risk
Because A is a counterparty to B and B is a counterparty to A both are exposed to this risk. For
example if Joe agrees to lends funds to Mike up to a certain amount, there is an expectation
that Joe will provide the cash, and Mike will pay those funds back. There is still the
counterparty risk assumed by the both. Mike might default on the loan and not pay Joe back or
Joe might stop providing the agreed upon funds.

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